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November 7_ 2008 – Brampton Brick Announces Third Quarter

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November 7_ 2008 – Brampton Brick Announces Third Quarter Powered By Docstoc
					         BRAMPTON BRICK ANNOUNCES THIRD QUARTER EARNINGS
                  SEMI-ANNUAL DIVIDEND DECLARED
(All amounts are stated in thousands of Canadian dollars, except per share amounts, unless otherwise indicated.)

BRAMPTON, ONTARIO, November 7, 2008 – Brampton Brick Limited (the “Company”) (TSX:BBL.A)
today reported net income of $2,851, or $0.26 per Class A Subordinate Voting share (“Class A share”)
and Class B Multiple Voting share (“Class B share”), for the third quarter ended September 30, 2008,
on a weighted average 10,952,000 Class A shares and Class B shares outstanding. For the third quarter
of 2007, net income was $4,597, or $0.42 per share, on a weighted average 10,835,000 Class A shares
and Class B shares outstanding.
For the nine month period ended September 30, 2008, the Company reported net income of $2,022, or
$0.19 per share, on a weighted average 10,925,000 Class A shares and Class B shares outstanding
compared to net income of $8,568, or $0.79 per share, on a weighted average 10,834,000 Class A shares
and Class B shares outstanding, for the corresponding period in 2007.
Effective October 2, 2007, the Company’s 65% owned subsidiary, 1312082 Ontario Limited (formerly
Medical Waste Management Inc.), completed the sale of substantially all of its business operations and
assets, excluding its 50% joint venture interest in Sharpsmart Canada Limited (“Sharpsmart”) which
was sold on April 21, 2008 and its interest in certain small quantity generator accounts which were
disposed of effective September 1, 2008. Accordingly, operating results and cash flows of these
components of the business have been classified as discontinued operations, as applicable, and
comparative amounts have been reclassified to conform with the current period financial statement
presentation.
RESULTS OF OPERATIONS
Three months ended September 30
Net income of $2,851 for the quarter is comprised of net income from continuing operations of $2,810,
or $0.26 per share, and a net income from discontinued operations of $41. For the comparable period
in 2007, net income of $4,597 was comprised of net income from continuing operations of $4,513, or
$0.42 per share, and net income from discontinued operations of $84.
Net sales from continuing operations for the quarter were $27,427 compared to $26,277 in 2007. Net
sales in the Masonry Products business segment increased by $1,021 on the strength of higher
shipments of new concrete masonry products. Net sales in the Landscape Products business segment
were at similar levels to last year. The Company’s proportionate share of net sales generated by the new
waste composting business of Universal Resource Recovery Inc. (”Universal”) amounted to $157.
Lower production volumes, primarily in the Masonry Products business segment, in the third quarter
of 2008 compared to the third quarter of 2007 resulted in an increase in unabsorbed manufacturing
expenses charged against operations. This variance accounted for most of the increase in cost of goods
sold. Higher distribution costs, due to an increase in delivery expenses and higher personnel costs, also
contributed to the increase in cost of goods sold.
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Production volumes have been lowered in 2008 to reduce inventories to more closely match
anticipated sales volumes which are expected to be negatively impacted by economic conditions
affecting both Canada and the U.S.
As a result of the increase in cost of goods sold, operating income from continuing operations, before
interest and other items, declined by $1,172 to $4,597 for the quarter ended September 30, 2008 from
$5,769 for the same period in 2007.
Interest on long-term debt increased by $185 to $368 primarily due to the increase in term bank loans.
Net interest income decreased marginally as the impact of lower surplus cash balances available for
investment was substantially offset by interest income earned on the promissory note receivable.
The Company incurred a foreign currency exchange loss of $57 in the third quarter of 2008. The loss
was primarily due to the impact of fluctuations in the rate of exchange between the Canadian and U.S.
dollar during the quarter on foreign currency transactions and balances.
In the third quarter of 2007 the Company reported a foreign currency exchange loss of $381. The
exchange loss was substantially related to U.S. cash balances held by the Company during the period.
The provision for income taxes for the third quarter of 2008 reflected an effective rate of 33.8%
compared to an expected rate of approximately 33.5%.
For the comparable period in 2007, the impact of certain foreign currency exchange losses on
intercompany balances, which are eliminated on consolidation but are tax deductible expenses in the
respective legal entity financial statements, resulted in the effective rate of income taxes being lower
than the expected rate.
Nine months ended September 30
Net income of $2,022 for the nine month period is comprised of net income from continuing operations
of $2,377, or $0.22 per share, and a loss from discontinued operations of $355, or $0.03 per share. For
the comparable period in 2007, net income from continuing operations was $8,158, or $0.75 per share,
and net income from discontinued operations was $410, or $0.04 per share.
Net sales from continuing operations for the nine month period were $67,208, an increase of $864 from
the same period in 2007. Higher sales in the Masonry Products business segment during the third
quarter were driven largely by sales of new concrete masonry products which were offset, in part, by
lower first quarter sales in the Masonry Products business segment and lower second quarter sales in
the Landscape Products business segment.
Year-to-date operating results were also impacted by substantially lower production volumes, in both
the Masonry Products and Landscape Products business segments, which resulted in a significant
increase in unabsorbed manufacturing expenses charged against operations. Higher distribution costs
also contributed to the increase in cost of goods sold for the same reasons as outlined above for the
third quarter results.
Selling expenses incurred to September 30, 2008 were slightly higher than the corresponding period
in 2007 primarily due to higher advertising and other marketing expenditures related to the
introduction of new products.
Increases in the cost of goods sold and selling expenses resulted in a decrease in operating income,
before interest and other items, of $5,137 to $5,484 for the nine months ended September 30, 2008
from $10,621 for the nine months ended September 30, 2007.
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                                                  –3–
Interest on long-term debt increased by $247 to $832 primarily due to the increase in term bank loans.
Net interest income decreased slightly for substantially the same reasons as outlined above for the
third quarter results.
The foreign currency exchange loss for the nine months to September 30, 2008 amounted to $374
compared to $1,698 for the same period in 2007. The exchange loss in 2007 was primarily due to U.S.
cash balances held during the period.
Other income in 2007 included a gain of $533 on the disposal of certain equipment in connection with
the outsourcing of the clay brick quarry operations in Brampton.
During the second quarter of 2007, the Company disposed of its investment in common shares of
Futureway Communications Inc. for cash proceeds of $688 which resulted in a gain for accounting
purposes in the same amount.
During the first quarter of 2008, certain properties located in the province of Quebec, which are surplus
to the Company’s requirements, were sold resulting in a gain of $136. Sale of properties during the
third quarter of 2007 resulted in a gain of $253.
The provision for income taxes of $2,335 for the nine months ended September 30, 2008 reflected an
effective income tax rate of 48.7% compared to an expected rate of 33.5%. The difference was primarily
due to valuation allowances of approximately $541 recorded against the recovery of income taxes that
would have otherwise been reported with respect to losses incurred in 2008 in the Company’s U.S.
operations and in the start-up operations of Universal.
More detailed discussion with respect to each operating business segment follows:
MASONRY PRODUCTS
For the third quarter ended September 30, 2008 operating income decreased by $1,131 to $4,678 on
net sales of $19,251 compared to operating income of $5,809 on net sales of $18,230 for the
corresponding period in 2007.
The $1,021 increase in net sales for the quarter was due to increased sales volumes generated by the
introduction of new concrete masonry products, such as stone veneer, window sills and concrete brick.
Sales in the U.S. markets continued to be impacted by the downturn in the U.S. housing industry.
Significantly lower clay brick production volumes in the third quarter of 2008 compared to the third
quarter of 2007 resulted in a large increase in unabsorbed manufacturing expenses charged against
operations. Higher distribution costs, primarily due to higher trucking expenses and higher personnel
costs, also contributed to an increase in cost of goods sold.
As noted earlier, production volumes have been lowered in 2008 to reduce inventories in anticipation
of lower demand due to current economic conditions.
For the nine month period, operating income declined by $2,685, from $12,939 on net sales of $49,071
in 2007 to $10,254 on net sales of $50,198 in 2008, for substantially the same reasons as outlined above
for the third quarter results.
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                                                  –4–
LANDSCAPE PRODUCTS
Operating income in the Landscape Products business segment for the third quarter of 2008 was $118
on net sales of $8,019 compared to operating income of $45 on net sales of $8,047 for the third quarter
of 2007.
For the nine months ended September 30, 2008 this business segment incurred an operating loss of
$4,306 compared to $2,055 in 2007. Significantly lower production volumes in 2008, to reduce
inventories, and higher distribution costs resulted in a substantial increase in cost of goods sold which,
in turn, resulted in a higher operating loss in the current period.
The Da Vinci Stone Craft operations, which are reported under this business segment, incurred a small
loss for the quarter and for the year-to-date in both 2008 and 2007.
OTHER OPERATIONS
Other operations include, among other things, the Company’s 50% joint venture interest in Universal.
This investment is accounted for using the proportionate consolidation method.
During the third quarter of 2008, net sales of $157 were generated from transportation of source
separated organic waste to a third party disposal site. Operations at Universal’s waste composting
facility in Welland commenced in October.
The Company’s proportionate share of the start-up loss incurred by Universal in the third quarter of
2008 amounted to $161 compared to $85 in 2007. For the nine month periods the Company’s
proportionate share of losses were $452 and $263, respectively.
DISCONTINUED OPERATIONS
Discontinued operations represent the Company’s medical waste business operations previously
operated by a 65% owned subsidiary, substantially all of which was sold in October 2007. It also
includes this subsidiary’s 50% joint venture interest in Sharpsmart, which was sold in April 2008, and
this subsidiary’s interest in certain small quantity generator accounts, which were disposed of effective
September 1, 2008.
For the third quarter ended September 30, 2008, net income from discontinued operations amounted
to $41 compared to $84 for the same period in 2007. For the nine month period discontinued
operations incurred a loss of $355, or $0.03 per share, compared to net income of $410, or $0.04 per
share, in 2007.
The loss of $355 in 2008 includes a reduction of $375 in the principal amount of the promissory note
taken back on the sale of the medical waste assets and business operations in October 2007 to settle a
dispute with the purchaser in such transaction and a provision of $625 with respect to certain other
expenditures which are expected to be incurred. The net effect of these adjustments, after deducting
income taxes and the non-controlling interest therein, resulted in an increase in the loss for the nine
month period of approximately $473, or $0.04 per share. As part of the settlement, the interest in
certain small quantity generator accounts which had been retained as part of the sale of the interest in
Sharpsmart were also transferred to the purchaser.
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                                                  –5–
CASH FLOWS
Cash flow provided by operating activities of continuing operations for the quarter ended September
30, 2008 totaled $11,251 compared to $10,053 for the same period last year.
The improvement of $1,198 resulted primarily from a lower investment in inventories due to lower
production volumes and a decrease in net income taxes recoverable. These increases were partially
offset by the decrease in net income from continuing operations.
Cash utilized for purchases of property, plant and equipment totaled $17,693 for the quarter compared
to $5,734 for the same period in 2007. Capital expenditures incurred in connection with the construction
of the Indiana clay brick plant were $11,868 in the third quarter of 2008 compared to $4,081 for the same
period in 2007.
Purchases of property, plant and equipment in the third quarter of 2008 also included an amount of
$4,511, compared to $72 for the same period in 2007, related to the Company’s 50% share of capital
expenditures incurred by Universal for building modifications and to acquire processing equipment.
During the quarter, operating bank advances decreased by $851 and term bank loans increased by
$6,925. The increase in term bank loans was to finance capital expenditures.
In 2007, repayments of inter-company advances in the amount of $214 in the third quarter and $1,044
in the nine month period represented payments received from the medical waste business that was
sold in October 2007.
For the nine month period ended September 30, 2008, cash provided by operating activities of
continuing operations amounted to $10,024 compared to $5,385 for the same period in 2007. The
factors contributing to this $4,639 improvement were substantially the same as those outlined above
for the third quarter.
Cash utilized for purchases of property, plant and equipment totaled $42,197 for the nine month period
compared to $13,762 in 2007. Capital expenditures relating to the Indiana clay brick plant were $30,168
compared to $9,612 in 2007. Capital expenditures relating to Universal were $7,725 compared to $248
in 2007.
Other cash inflows for the year-to-date period included proceeds of $216 from the sale of properties, a
$715 repayment by Sharpsmart of an inter-company advance upon the sale of the Company’s interest
in this business and $634 from the issuance of Class A shares upon the exercise of stock options under
the Company’s Stock Option Incentive Plan.
Other cash outflows in 2008 included cash dividends to shareholders of $0.10 per Class A share and
$0.10 per Class B share paid on June 30, 2008 to shareholders of record on June 15, 2008, $339 for the
repurchase of 34,800 Class A shares under the Company’s Normal Course Issuer Bid and $700
representing the non-controlling interests’ share of cash dividends paid by a subsidiary. These
dividends represent a further distribution of the cash proceeds from the sale of the medical waste
assets and business operations in 2007.
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                                                 –6–
OTHER
The Company’s Masonry Products and Landscape Products business segments are cyclical. Demand
for masonry products fluctuates in accordance with the level of new residential and commercial
construction. Demand for landscape products fluctuates in accordance with the level of industrial,
commercial and institutional construction and consumer spending.
Current economic conditions are likely to result in a lower overall level of construction activity and
reduced consumer spending. The Company anticipates that demand for its products will be impacted
accordingly. Consequently, operating plans and manpower requirements have been, and will continue
to be, re-evaluated and adjusted, as required, in order to minimize the impact on operating results and
cash flows.
Construction of the Company’s new clay brick manufacturing plant in Indiana, which commenced in
2007, is substantially on schedule and is expected to be completed in the fourth quarter of 2008.
Construction of Universal’s waste composting facility in Welland, Ontario has been substantially
completed and operations commenced in October, 2008. During the second quarter of 2008 Universal
finalized credit arrangements in an aggregate amount of $20,000, including both term loan and
operating loan facilities, to fund its capital expenditure and operating requirements. The Company and
the joint venture partner have each provided a guarantee of $6,500 as security for Universal’s
borrowings under this credit agreement. As at September 30, 2008 Universal’s total borrowings under
these facilities amounted to $14,350 and letters of credit in the amount of $874 had been issued.
The Company also announced today that the Board of Directors declared a dividend of $0.10 per Class
A Subordinate Voting share and $0.10 per Class B Multiple Voting share outstanding, payable on
December 31, 2008 to shareholders of record on December 15, 2008.
Dividends paid by the Company are designated as eligible dividends pursuant to Subsection 89(14) of
the Income Tax Act (Canada). An eligible dividend received by a Canadian individual shareholder is
entitled to the enhanced dividend tax credit.
Certain statements contained herein constitute “forward-looking statements”. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors including, but not limited
to, those identified under “Risks and Uncertainties” in the Company’s 2007 Annual Report, which may
cause actual results, performance or achievements of the Company to be materially different from
future results, performance or achievements expressed or implied by such forward-looking
statements.
Brampton Brick is Canada’s second largest manufacturer of clay brick and manufactures concrete
paving stones, retaining walls, garden walls and enviro products in Canada and U.S. under the Oaks
Concrete Products trade name. The Company also manufactures a range of concrete masonry
products including stone veneer, window sills and concrete brick. Products are used for residential
construction and for industrial, commercial, and institutional building projects. Da Vinci Stone Craft
Ltd., a 75% owned subsidiary, manufactures fireplace surrounds and accessory products. The
Company also holds a 50% joint-venture interest in Universal Resource Recovery Inc. which
commenced operations at its newly constructed waste composting facility in Welland, Ontario in
October, 2008.
                                               – more –
(unaudited) (in thousands of dollars, except per share amounts)

                                                                  Three months ended          Nine months ended
                                                                     September 30                September 30
 CONSOLIDATED STATEMENTS OF INCOME                                 2008         2007           2008         2007

 Net sales from continuing operations                        $    27,427    $   26,277    $   67,208    $ 66,344

 Cost of goods sold                                               17,708        15,253        45,270        39,461
 Selling, general and administrative expenses                      3,019         3,232        10,026         9,780
 Amortization                                                      2,103         2,023         6,428         6,482
                                                                  22,830        20,508        61,724        55,723
 Operating income from continuing operations
  before the undernoted items                                      4,597         5,769         5,484        10,621
   Interest on long-term debt                                       (368)         (183)         (832)         (585)
   Interest income (net)                                              87            99           330           349
   Foreign currency exchange loss                                    (57)         (381)         (374)       (1,698)
   Foreign currency exchange gain (loss)
     on cash flow hedges                                             (12)          106            (1)          176
   Other income                                                       20            56            48           663
                                                                    (330)         (303)         (829)       (1,095)

 Income from continuing operations
   before the following items                                      4,267         5,466         4,655         9,526
 Gain on sale of property held for sale                                –          253           136           253
 Gain on sale of investment
  in Futureway Communications Inc.                                     –             –             –          688
 Income from continuing operations before
   income taxes and non-controlling interests                      4,267         5,719         4,791        10,467
 Provision for income taxes
   Current                                                        (1,365)         (804)       (2,261)         (866)
   Future                                                            (76)         (414)          (74)       (1,455)
                                                                  (1,441)       (1,218)       (2,335)       (2,321)
 Income from continuing operations before
   non-controlling interests                                       2,826         4,501         2,456         8,146
 Non-controlling interests                                           (16)          12            (79)          12
 Net income from continuing operations                             2,810         4,513         2,377         8,158
 Net income (loss) from discontinued operations                      41            84           (355)         410
 Net income for the period                                   $     2,851    $    4,597    $    2,022    $    8,568

 Net income per Class A and Class B share
   From continuing operations                                $      0.26    $     0.42    $     0.22    $     0.75
   For the period                                            $      0.26    $     0.42    $     0.19    $     0.79
 Weighted average Class A and Class B shares
  outstanding (000’s)                                             10,952        10,835        10,925        10,834



                                                        - more -
(unaudited) (in thousands of dollars)

                                                                     Three months ended           Nine months ended
                                                                        September 30                 September 30
  CONSOLIDATED STATEMENTS OF CASH FLOWS                               2008          2007           2008          2007

  Cash provided by (used for) activities of continuing operations
  Operating activities
     Net income from continuing operations
        for the period                                        $      2,810     $    4,513    $    2,377     $    8,158
     Items not affecting cash
        Amortization and accretion                                   2,116          2,034         6,465          6,517
        Future income taxes                                             76            414            74          1,455
        Non-controlling interests                                       16            (12)           79            (12)
        Unrealized foreign currency exchange (gain) loss               (17)           152            43           (114)
        Gain on sale of property held for sale                           –           (253)         (136)          (253)
        Gain on disposal of property, plant and equipment                –            (24)           (4)          (563)
        Gain on sale of investment in
         Futureway Communications Inc.                                   –              –             –           (688)
        Other                                                           22              8           179            210
                                                                     5,023          6,832         9,077         14,710
  Changes in non-cash operating items
     Accounts receivable                                             3,115          4,095         (7,620)        (3,322)
     Inventories                                                     2,795           (595)         5,306         (3,322)
     Accounts payable and accrued liabilities                         (989)           (70)         2,038          1,074
     Income taxes payable (net)                                      2,169           (211)         2,248         (3,237)
     Other                                                            (862)             2         (1,025)          (518)
                                                                     6,228          3,221           947          (9,325)
  Cash provided by operating activities
    of continuing operations                                        11,251         10,053        10,024          5,385
  Investing activities
      Purchase of property, plant and equipment                     (17,693)       (5,734)       (42,197)       (13,762)
      Proceeds from disposal of property, plant and equipment             –            42             12            619
      Proceeds from sale of investment in
        Futureway Communications Inc.                                     –            –              –            688
      Net proceeds from sale of property held for sale                    –          342            216            342
      Inter-company advances repaid by discontinued operations            –          214            715          1,044
  Cash used for investment activities
    of continuing operations                                        (17,693)       (5,136)       (41,254)       (11,069)
  Financing activities
      Increase (decrease) in bank operating advances                  (851)            80         1,029          (2,385)
      Increase in term bank loans                                    6,925              –        20,175               –
      Repayment of term loans                                          (17)          (179)         (289)           (417)
      Repayment of mortgage                                              –         (1,718)            –          (1,718)
      Payments on obligations under capital leases                     (70)           (49)         (180)           (247)
      Payment of dividends by subsidiary
        to non-controlling interests                                     –              –           (700)             –
      Payment of dividends to shareholders                               –              –         (1,096)        (1,084)
      Proceeds from exercise of stock options                            –              –            634             12
      Class A shares repurchased                                      (134)             –           (339)             –
  Cash provided by (used for) financing activities
    of continuing operations                                         5,853         (1,866)       19,234          (5,839)
  Net cash used for discontinued operations                             (70)         (291)         (266)          (201)
  Increase (decrease) in cash and cash equivalents                    (659)         2,760        (12,262)       (11,724)
  Cash and cash equivalents at the beginning of the period           2,453          9,962        14,056         24,446
  Cash and cash equivalents at the end of the period          $      1,794     $   12,722    $    1,794     $   12,722


                                                          - more -
(in thousands of dollars)                                              (unaudited)

                                                                     September 30        December 31
 CONSOLIDATED BALANCE SHEETS                                                2008               2007

  ASSETS
  Current assets
   Cash and cash equivalents                                             $     1,794        $    13,860
   Accounts receivable                                                        14,926              7,433
   Inventories                                                                17,303             22,609
   Income taxes recoverable                                                        6              2,919
   Future income taxes                                                           664                294
   Other current assets                                                        1,910                988
   Promissory note receivable, current                                         3,294              3,382
   Assets of discontinued operations held for sale                                 –                538
                                                                              39,897             52,023
  Property, plant and equipment (net)                                         98,013             97,756
  Construction in progress                                                    53,650             14,851
                                                                             151,663            112,607
  Other assets
   Goodwill                                                                    6,711              6,711
   Future income taxes                                                         1,479              1,270
   Promissory note receivable, long-term                                       6,520              6,449
   Other                                                                       1,361              1,472
   Assets of discontinued operations held for sale                                 –                917
                                                                              16,071             16,819
                                                                         $ 207,631          $ 181,449
  LIABILITIES
  Current liabilities
   Bank operating advances                                               $     1,679        $       650
   Accounts payable and accrued liabilities                                   17,268             14,000
   Income taxes payable                                                        3,589              4,253
   Long-term debt, current portion                                             5,082              4,684
   Derivative financial instruments, current                                     588              1,606
   Asset retirement obligation                                                    50                375
   Liabilities of discontinued operations held for sale                          730                822
                                                                              28,986             26,390
  Long-term debt, less current portion                                        23,625              3,744
  Derivative financial instruments, non-current                                 840                809
  Future income taxes                                                          7,810              7,722
  Asset retirement obligation                                                   585                673
  Liabilities of discontinued operations held for sale                               –              14
                                                                              61,846             39,352
  Non-controlling interests                                                    3,553              4,366
  SHAREHOLDERS’ EQUITY                                                       142,232            137,731

                                                                         $ 207,631          $ 181,449




                                                          - more -
(in thousands of dollars)                                                      (unaudited)

                                                                       Nine months ended              Year ended
                                                                            September 30             December 31
  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS                                      2008                    2007

  Balance at the beginning of the period                                        $    111,587           $ 110,246
     Net income                                                                        2,022               3,519
     Premiums paid on repurchase of capital stock                                       (200)                 (8)
     Dividends                                                                        (1,096)             (2,170)
  Balance at the end of the period                                              $    112,313           $ 111,587




(unaudited) (in thousands of dollars)

                                                             Three months ended           Nine months ended
  CONSOLIDATED STATEMENTS OF                                    September 30                 September 30
  COMPREHENSIVE INCOME                                        2008         2007            2008         2007

  Net income for the period                           $       2,851    $   4,597      $      2,022     $   8,568
  Other comprehensive income (loss)
     Gain (loss) on cash flow hedges net of taxes              (104)       (1,751)              54         (2,611)
  Total comprehensive income for the period           $       2,747    $   2,846      $      2,076     $   5,957




For more information please contact:
Ken Mondor, Vice-President, Finance
Brampton Brick Limited
Tel: 905-840-1011
Fax: 905-840-1535
e-mail: investor.relations@bramptonbrick.com

                                                    - 30 -

				
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